Ten years on, the crisis still looms large

Fear of renewed trouble has never been far away since August 2007.

  • By Richard Barley,
  • The Wall Street Journal
  • Economic Insight
  • Market Analysis
  • Economic Insight
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Doesn't time fly? Or alternatively, things can last longer than you think.

Wednesday marks the 10th anniversary of one of the defining events of the global financial crisis. There had been rumblings before, but Aug. 9, 2007 saw money markets seize up after BNP Paribas suspended three funds holding U.S. asset-backed securities, saying they were impossible to value and blaming a "complete evaporation of liquidity." Central banks swung into action, led by the European Central Bank with an injection of €95 billion in liquidity.

Ten years on, they haven't stopped. In quick succession, 2008's banking collapse, the eurozone crisis, a slowdown in emerging markets and finally the oil-price crash all posed major challenges. Together, the balance sheets of the ECB, U.S. Federal Reserve and Bank of Japan have grown to around $14 trillion in size.

Indeed, the current central-bank debate is really about the beginning of the end of extraordinary monetary-policy measures. It is only in the last few quarters that global growth has become more synchronized. Inflation has remained low, allowing central banks to take a very gradual approach.

The financial crisis still looms large in market psychology. The prevailing tone is one of worry about the high level of asset prices, concern about the low level of volatility and a fear of complacency: rising markets are a source of angst, not euphoria. But this persistent concern may yet be a positive factor, by helping to prevent markets from becoming too reckless. Low market volatility may simply reflect low economic volatility. BlackRock notes low-market-volatility regimes can last for years and have accompanied sustained economic expansions.

Undoubtedly, a shock will occur at some point. Geopolitical tensions over North Korea are just the latest focus. China’s reliance on debt, persistent vulnerabilities in the eurozone, the removal of monetary stimulus and populist politics are all on the watch list. But the real time to worry should be when no one is worried. Ten years on from August 2007, that day has yet to arrive.

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